Chapter 1 Running Your Own MNC

Developing Your Idea

Create an idea for your own MNC to conduct international business. Your idea should
be simplified to the degree that you could possibly implement it someday. However,
your idea should also be sufficiently creative to be successful if done properly. Your
idea should focus on one country and one foreign currency, since many MNCs are
focused in this manner when they are first created. So that you can recognize the
issues regarding exchange rate risk that are discussed throughout this text, you
should assume that you will receive foreign currency when selling your product. Your
idea should be for a small MNC instead of a large MNC because even most large
MNCs began as small firms. The following questions will help you define your MNC
idea:

1. What is the product that you plan to sell?

2. What foreign country do you plan to target?
3. How will you sell the product in that country? (i.e., through a distributor? by
mail?)
4. Is there some evidence that consumers in that country would buy this type of
product?
5. Do you need to purchase supplies or to hire labor?

Will any expenses you incur from producing the product be in dollars or some other
currency?

Chapter 2 Running Your Own MNC

Assessing Country Factors That Will Affect the Demand for Your Product

1. Identify the factors that can affect the balance of trade between the United
States and the country that you targeted for your business. Explain how each
of these factors may affect the demand for your product.
2. Which of these factors is likely to be most important in affecting the demand
for your product?

Accessing Trade Data

Determine whether the product you plan to sell is already one of the main exports to
that country.

Accessing Import Controls

Review the import controls set by that country's government. Determine whether
your business would be affected by trade regulations.

Chapter 3 Running Your Own MNC

Using the Foreign Exchange Market

 1. Explain how you will use the spot market for your business.
2. What bank do you plan to use to exchange the foreign currency received for
dollars? What is the bid/ask spread on a recent quotation by that bank? (Call
the bank to obtain quotations.)

Will you possibly need the forward market? Explain.

Chapter 4 Running Your Own MNC

Monitoring Movements in the Foreign Currency's Value

What key factors likely affect the value of the foreign currency of concern over time?

Chapter 6 Running Your Own MNC

Monitoring Central Bank Intervention

1. How can your business be affected if the Fed attempts to strengthen the
dollar in the foreign exchange market?
2. If the Fed decides to weaken the dollar, how will your business be affected?
3. How can indirect central bank intervention affect your business even if there
is no impact on exchange rates?

Accessing Central Bank Information

Go to www.bis.org/cbanks.htm to access the Web site link for the central bank in
your target country. Determine whether this central bank intervenes to control its
currency in the foreign exchange market.

Assessing Spot and Forward Rates

1. Obtain a quotation for the spot rate of the foreign currency (that you will
receive from your business) from the bank where you intend to conduct your
foreign exchange transactions. Then, obtain a quotation for the spot rate of
the foreign currency from another bank. Does it appear that the spot rates
are aligned across locations at a given point in time?
2. Obtain a quotation for the one-year forward rate of the foreign currency from
the bank where you intend to conduct your foreign exchange transactions.
Then, use a business periodical to determine the prevailing one-year interest
rates in the United States and the foreign country of concern. Does it appear
that interest rate parity exists?
3. Review the data on forward rates from The Wall Street Journal or another
source to determine whether the foreign currency of concern typically exhibits
a discount or a premium. Then review data on interest rates to compare the
 foreign country of concern and the U.S. interest rates. Does it appear that the
forward rate of the foreign currency exhibits a premium (discount) when its
interest rate is lower (higher) than the U.S. interest rate, as suggested by
interest rate parity?

Chapter 8 Running Your Own MNC

Determining Whether IFE Holds

Use The Wall Street Journal or another data source to record the interest rate
differential between the interest rate of the foreign country in which you plan to do
business and the U.S. rate over the last five or so quarters. Then, review the
exchange rate percentage change in the foreign currency of concern over each of
those corresponding quarters to determine whether the international Fisher effect
(IFE) appears to hold over those quarters for that currency.

Chapter 9 Running Your Own MNC

Monitoring Exchange Rate Trends

Use a business periodical or the Internet to determine how the value of the foreign
currency of concern has changed in each of the last five weeks. Does it appear that
there is a trend over the last five weeks? What is the mean percent-age change over
these weeks? If you believed that the currency's value would continue following the
recent trend, would it appreciate or depreciate in the near future?

Chapter 13 Running Your Own MNC

Establishing a Subsidiary in Foreign Country

1. Assuming that your international business is successful, identify reasons why

it may be feasible to establish a small subsidiary in the foreign country rather
than continue exporting.

Identify the disadvantages associated with establishing a small subsidiary in the

foreign country of concern.

Chapter 14 Running Your Own MNC

Deriving a Required Rate of Return for an International Project

Consider a possible project that would result in expansion of your international

business. Describe how you would derive a required rate of return for this project.

Chapter 19 Running Your Own MNC

Ensuring Payment for Exports

Explain how your business could ensure payment for the products that you are
exporting to a foreign country.

Chapter 20 Running Your Own MNC

Financing in Foreign Currency

1. Given that your business has receivables in a foreign currency, you may want
to consider financing in that same foreign currency to offset the exposure.
Compare the recent interest rate of the foreign currency of concern to the
U.S. interest rate: Is the foreign interest rate typically higher or lower than
the U.S. interest rate? Would you use financing in that currency to offset
receivables? Explain.

Explain how you could use foreign financing for your business in a manner that
would reduce your exposure to exchange rate risk. Be specific.